Folk Exam Questions - Chapter 14
Zernoni Company's net income last year was $225,000 and its interest expense was
$30,000. Total assets at the beginning of the year were $1,950,000 and total assets at
the end of the year were $1,830,000. The company's income tax rate was 30%. What
was the company's return on total assets for the year?
Return on total assets = [Net income + (Interest expense x (1 – Tax rate)] ÷ Average
Return on total assets = [$225,000 + ($30,000 x (1 – .30)] ÷ [($1,950,000 +
$1,830,000) ÷ 2]
Return on total assets = ($225,000 + $21,000) ÷ $1,890,000 = 13.0%
Selected financial data for Spelling Company appear below:
During the year, the company paid dividends of $30,000 on its preferred stock. The
company's net income for the year was $360,000. What is the company's return on
common stockholders' equity for the year?